Failing the front-page-of-The-Wall-Street-Journal test twice in one week

“How will this look on the front page of the Wall Street Journal?” is a handy question to use when pondering what to do about an accounting or auditing issue. It’s useful for any business decision.

I’ve used that for myself and as an illustration for clients and other people I’m talking to. It provides a good way to frame up how a decision will look to other people.

For the second time this week, Mr. Scott London, formerly a partner at KPMG, has seen how this question plays out.

The front page of the Wall Street Journal today has a headline across three columns:

Secret Recordings,

Cash in Insider Sting

How would you like to be the subject of the article?

Above the title is a color photo, about 3” by 4” provided by the FBI. It first appears in the world as Attachment A to the indictment.

In the unlikely event you haven’t actually seen the picture yet, the FBI asserts it is of Mr. London receiving an envelope containing $5,000, which is an alleged payment from his golf buddy to him sharing the proceeds of insider trading.

Check out the second paragraph to see the ex-partner’s name:

The charges against former KPMG partner Scott London are the latest twist in an alleged scheme that had its roots in a 2005 meeting at a Los Angeles-area golf club and eventually involved tips on five public companies, wads of $100 bills and a sting operation in which agents bundled bags of cash and recorded Mr. London accepting them.

Check out the third paragraph which gives more details of the depth of the alleged insider trading and that the FBI claims it has recordings:

The authorities said Mr. London provided a Los Angeles jewelry dealer named Bryan Shaw with advance notice of earnings releases or merger plans on the companies. This year, Mr. Shaw allowed federal agents to record calls with Mr. London and wore a recording device when meeting with him, the criminal complaint against Mr. London said.

Read between the lines on the fourth paragraph:

The authorities described an alleged conspiracy involving more companies and more in payments for the tips than previously known. Mr. London earlier this week told The Wall Street Journal he received little more than a discount on a watch, dinners and “on a couple of occasions” parcels of $1,000 to $2,000 in cash. He also had said he provided only general assessments of companies as doing well or not doing well.

You can reach your own conclusions on Mr. London telling the WSJ reporters one thing and dramatically more serious information showing up in the indictment a day later. Unlike telling untruths to the feds, which is a felony, telling stories to a newspaper reporter isn’t going to get you jail time. You just look really, really bad when you read about two different stories on the front page of the WSJ.

And all that stuff is on the front page. Of the Wall Street. Above the fold. With a color photo.

This is the meaning of the old ‘front page of the newspaper test.’

Here’s my post from earlier this week:  Live example of the ‘Wall Street Journal’ test.